Decoding Your Credit Card Statement

Decoding a credit card statementThe letter arrives on a Tuesday. You inspect the exterior, where your name is printed along with a message: “Important! Account Statement Enclosed.” You carefully unseal the envelope and remove the neatly folded pages, but find only a string of numbers and letters: “Transaction Reference Number 5884186PS0388W6YM” … “APR increase to 26.99% … “Variable Rate on Cash Advances 16.99%.” Your eyes fix on the only portion that you can understand: “Minimum Payment Due.” You pay that amount—relieved that you deciphered the message enough to fold the pages back into the envelope and stuff it away in a desk drawer.

You don’t have to be a super sleuth to crack the code of your credit card statement. In fact in 2009, Congress made it easier for Americans to understand communications from their credit card companies by passing the Credit CARD Act (also called the Credit Card Accountability, Responsibility, and Disclosure Act and the Credit Cardholders Bill of Rights). The act aims to stop credit card companies from unfair or abusive practices such as allowing you to go over your credit limit and then charging you a penalty.

Items contained in a Credit Card Statement

Click through the slideshow below to decode the five major areas of your bill.

Credit Card Statement: Summary of Account Activity

At a glance: Previous balance, payments, other charges, purchases, balance transfers, cash advances, past due amount, fees charged, interest charged, credit limit, available credit, statement closing date, days in billing cycle

Decoded: This section breaks down how much you owed in the previous billing cycle, i.e., the amount of your last statement, minus any payments you made. It also shows any new charges—including purchases, cash advances, and balance transfers—and any fees and interest charges. There is no standard length for billing cycles, however the Credit CARD Act requires the credit card company to give you at least 21 days from the date of your statement until the payment due date, so that you have adequate time to read it and make necessary payments.

Pay special attention to: Statement closing date and days in billing cycle. Knowing the length of your billing cycle and when it closes can help you better plan for the following cycle. For example, you might choose to delay a big purchase such as a plane ticket until the beginning of a new billing cycle, so that you have more time to collect the money to pay it off in full the following month and avoid incurring interest charges.

Credit Card Statement: Payment Information

At a glance: New balance, minimum payment due, payment due date, late payment warning, minimum payment warning

Decoded: Credit card companies are required to show on the statement how many years it will take you to pay off your current balance if you pay only the minimum amount due each month. The statement also shows how much you would need to pay each month to pay off the balance within three years—assuming you have no additional charges. (Want to estimate how long it will take you to pay off your credit card? Try this calculator.)

Pay special attention to: Your bill’s due date, which must be the same day each month according to the Credit CARD Act. A payment generally is considered on time if it is received by 5 p.m. (in the recipient’s time zone) on the day it is due. If you send payment via regular mail, be sure to allow 5–7 days for delivery. Most banks also accept payment over the phone or on a secure website. If the due date falls on a weekend or holiday, make your payment as usual to avoid late fees and interest.

Credit Card Statement: Account Activity

At a glance: Transactions, fees, interest charged

Decoded: In addition to purchases, this section shows balance transfers, cash advances, and any associated fees and interest charges. Most statements chronologically list all transactions in one place, while other statements separate transactions by type (e.g., purchase, cash advance). Interest charges must be listed by type of transaction because rates for balance transfers and cash advances often are different than the interest charged on purchases. For example, you are charged a different interest rate if you swipe your card at a store or buy something online than if you use a cash advance check.

Pay special attention to: Unauthorized transactions. The sooner you spot and correct mistakes, the better your chances of stopping identity theft and protecting your credit score. If you don’t catch it right away, you still have time. One advantage of a credit card over a debit card is that you can stop payment before money gets taken out of your bank account. And, under the Fair Credit Billing Act, you have 60 days from the statement mailing date to correct unauthorized transactions.

Credit Card Statement: Interest Charge Calculation

At a glance: Annual percentage rate (APR), variable rates

Decoded: APR is the amount of interest you are charged each year on your credit card balance. Knowing the different APRs that your credit card carries can save you money. One credit card can have different APRs for different types of transactions. For example, your APR on new purchases might be 14.99 percent, while your APR on cash advances is 21.99 percent. That means that if you used your card to buy $500 worth of goods, your annual interest on that purchase would be approximately $75 if you didn’t pay it off right away. But, if you took the same $500 out as a cash advance on your credit card, your annual interest would be approximately $110.

Pay special attention to: Variable APRs, penalty APRs, and introductory offers. Variable APRs change over time based on larger economic factors, including the Prime Rate, so be aware that your interest rate can increase. Also take note of your penalty APR—this is the interest rate you will be charged if you miss a payment or send it in late. Be cautious about special introductory offers for 0 percent APRs on balance transfers and new lines of credit. These offers usually last a limited time, such as six months to a year. If you have not paid off your balance when the offer period expires, you will begin to accrue interest at the standard APR, which may increase your minimum payment amount. Make sure you know what the APR will be after the introductory offer and calculate how much your payments will be based on your projected balance.

Credit Card Statement: Account Terms

At a glance: Penalty APR, notice of changes to APR

Decoded: The Credit CARD Act stipulates that your credit card company must notify you 45 days before it makes changes to your agreement. This includes any increases in percentage rates or fees, as well as any changes in the penalty amount you are charged when you have a late payment or when you go over your credit limit.

Pay special attention to: Changes to your APR. An increase of a few percentage points on your APR may not seem like much, but the larger your balance, the harder the hit. For example, if you have a balance of $2,000 at an APR of 16 percent, you’re paying $320 in interest per year. If your credit card company raises your APR to 20 percent, you will be paying $400 in interest. Knowing that you will be charged a whopping $80 more per year in interest might make you think twice about your next credit card purchase.


[Any reference to a specific company, commercial product, process, or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]